Sterling Bulls Refuse To Surrender Without A Fight

Never underestimate the resilience of the GBP bulls, their ability to creep out from the woodwork and put up a fight to regain control is admirable. The GBP/USD just received a 40 pip boost following the announcement that UK Services PMI rose to an 8-month high in July. This followed Monday’s 50 pip upturn, after the UK’s latest Markit Construction PMI surpassed expectations.

The news that the UK Services PMI increased to an 8-month high will be domestically looked at favorably for several reasons. Firstly, the UK services sector remains the United Kingdom’s main GDP contributor, which means this release should bode well for the UK’s Q3 GDP. Secondly, the services sector employs around 80% of the UK labour force. This is encouraging for next Wednesday’s UK Jobless Claims data release. A lower UK unemployment rate is seen as a crucial factor guiding the Bank of England’s (BoE) decision to raise interest rates. According to BoE Governor Carney, a UK unemployment rate below 6% might influence the central bank’s decision.

The GBP/USD’s recent decline, which has included 12 days of losses out of a possible 13 trading days have certainly raised a few eyebrows. However, some patience is required here. It is important to bear in mind that due to the escalation of various political tensions which dominated the headlines throughout July, investors became attracted to safe havens, such as the USD. Additionally, UK economic releases were low in volume. The UK data that had been released included UK Mortgage Approvals which rose more than forecast, alongside UK House Prices which increased by around an annualised 10%. The BoE have made it no hidden secret lately that they view the domestic housing sector as one of the largest risks to the UK economy. Therefore, it is understandable for such news to have also contributed to the GBP/USD’s recent decline.

The majority of the UK’s other fundamentals have performed consistently impressively over the past year, as seen by the latest Construction and Services PMI. If tomorrow’s Industrial and Manufacturing Production data impresses, expect the GBP bulls to start collecting enough momentum to charge again at the BoE’s door, which will likely heap further pressure on Governor Carney to raise interest rates.




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